Donald Trump’s return to the White House has brought with it a renewed embrace of economic nationalism, protectionist trade policies, and monetary adventurism. While these moves may deliver short-term political dividends and appeal to his electoral base, they carry significant long-term risks for the international financial order. Chief among these is the growing threat to the status of the dollar as the world’s dominant reserve currency — a pillar of American power that Trump’s own policies now appear to be undermining.
The strength of the dollar is not just a function of America’s economy — it is a cornerstone of the global financial system. For decades, the dollar has enjoyed what former French President Valéry Giscard d’Estaing famously called an exorbitant privilege, allowing the US to borrow cheaply and run persistent trade deficits without immediate consequences. That privilege is now under threat, not from external adversaries alone, but from within —specifically from the economic policies of the Trump administration.
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Tariffs, allies, and erosion of trust
Central to Trump’s second-term economic strategy is the aggressive imposition of tariffs—even on close allies like Canada and Europe. While tariffs may aim to boost domestic manufacturing, they also raise import costs, spur inflation, and create global economic friction. The imposition of 25% tariffs on Canadian and Mexican goods, threats against European agriculture, and sweeping tariffs on Chinese imports have all contributed to increasing volatility and unpredictability in global markets.
Trump’s strategy rests on the notion of leveraging America’s market size to coerce trade partners into accepting a weaker dollar and more favourable terms for US exporters. This so-called “Mar-a-Lago Accord”—named after his Florida estate—seeks to mimic the 1985 Plaza Accord but through intimidation, not cooperation. In practice, however, this coercive approach risks weakening the very international relationships that have upheld dollar dominance for decades.
More alarming is Trump’s willingness to weaponise the dollar system to achieve foreign policy aims. He has threatened not only economic rivals but also steadfast allies with treasury, banking, and financial sanctions. Such threats—once reserved for pariah states—signal to the world that the US may no longer be a neutral guarantor of financial stability.
This heavy-handed approach is causing tremors in Europe. As a recent Reuters report reveals, central banking officials in the eurozone have begun informal discussions about whether they can continue to rely on the Federal Reserve for emergency dollar liquidity. Though the Fed remains independent, the mere perception that political pressure from the White House could interfere with global dollar backstops is a red flag. It introduces doubt into what has long been a bedrock of global financial stability.
Endorsement of Bitcoin undermining the greenback
In a startling March 2025 executive order, President Trump announced the creation of a “digital gold” reserve—capitalised with Bitcoin—as a strategic hedge against monetary instability. While the decision positions the US as a first mover in crypto reserve holdings, it also sends a contradictory signal: if the dollar is unassailable, why promote an alternative?
The US is not alone in this shift. Bhutan, El Salvador, and China are rumoured to be accumulating Bitcoins. Brazil and Switzerland have floated similar proposals. As more countries diversify into Bitcoin or other non-dollar reserves, the greenback’s centrality could erode further.
Ironically, while Trump seeks to defend dollar dominance with one hand—via tariffs and trade leverage—he appears to be undermining it with the other by legitimising a decentralised rival. This schizophrenic policy may accelerate global moves toward de-dollarisation.
Mirage of weaker dollar boost
Trump’s economic team believes that a weaker dollar will stimulate exports and revive manufacturing. However, the underlying assumptions are flawed. As analysts like David Lubin of Chatham House point out, exchange rates are only one part of the competitiveness puzzle. Structural factors—like productivity, labour costs, and supply chains—matter more.
Moreover, the dollar’s exchange rate is determined by complex, trillion-dollar global currency markets. It is not easily manipulated by executive fiat. Any attempt to force a devaluation, especially through erratic trade policies and adversarial diplomacy, risks backfiring by spooking investors and raising inflation.
Fracturing global financial consensus
The dollar’s dominance is not merely an economic artifact; it is a reflection of deep trust in US institutions, rule of law, and geopolitical stability. The postwar financial system was built on consensus among allies—most notably between the US and Europe. Trump’s transactional worldview threatens to shatter this foundation.
By alienating allies, undermining the Federal Reserve’s independence, endorsing alternative assets like Bitcoin, and injecting volatility into global trade, the Trump administration is eroding the very pillars that support the dollar’s pre-eminence.
A strategic miscalculation
The administration’s bet is that other countries are too dependent on the US market to seriously challenge the dollar’s hegemony. But this is a dangerous miscalculation. As confidence wanes, more countries may pursue reserve diversification—not just into BTC, but into euros, gold, or even central bank digital currencies (CBDCs). Even a marginal decline in global demand for dollar-denominated assets could raise US borrowing costs, fuel inflation, and trigger a cascade of financial instability.
In trying to reshape the world order to serve America’s short-term interests, Trump may end up hastening the long-term decline of one of its most powerful strategic assets—the dollar.
The Trump administration’s mix of tariffs, monetary nationalism, and crypto experimentation amounts to playing with fire. While it may score political points at home, it risks igniting a broader global move away from the dollar system. For a country whose prosperity and influence are so deeply intertwined with its currency’s global role, this is a gamble that America can ill afford.
The dollar’s fall, if it comes, will not be sudden or dramatic—it will be slow, strategic, and quietly orchestrated by allies and rivals alike who have lost trust in America’s stewardship of the global economic order. And if Trump continues down this path, history may record not the tariffs, not the tweets, but the dollar’s dethronement as his most consequential legacy.